Quiz #168

• 1. Modern Monetary Theory teaches us that one of the dangers of public spending is that it can crowd out private spending.
• False
• True
• 2. National accounting shows us that a government surplus equals a non-government deficit. But that doesn't mean that if fiscal austerity ends up generating a budget surpluses that households and firms will be running deficits.
• False
• True
• 3. A hallmark of the neo-liberal period has been the declining share of wages in national income which in part meant that economic growth became more dependent on credit to maintain growth in consumption spending. However it is not necessary for real wages to grow in the coming years to reverse that trend. So real wage cuts under austerity programs could increase the wage share.
• False
• True
• 4. The payment of a positive interest return by the central bank on overnight bank reserves does not eliminate the need for it to conduct open market operations to ensure its policy rate is sustained (ignore any reserve requirements).
• False
• True
• 5. Premium Question: Mainstream economists have argued that the large scale quantitative easing conducted by central banks in recent years - so-called printing money - would be inflationary. They base their predictions on the Quantity Theory of Money which links the growth of the money stock to the inflation rate (too much money chasing too few goods). The fact that inflation is in retreat despite these programs does not refute the mainstream economic theory of inflation.
• False
• True

Quiz #168 answers

• 1. Modern Monetary Theory teaches us that one of the dangers of public spending is that it can crowd out private spending.

Answer: True

• 2. National accounting shows us that a government surplus equals a non-government deficit. But that doesn't mean that if fiscal austerity ends up generating a budget surpluses that households and firms will be running deficits.

Answer: True

• 3. A hallmark of the neo-liberal period has been the declining share of wages in national income which in part meant that economic growth became more dependent on credit to maintain growth in consumption spending. However it is not necessary for real wages to grow in the coming years to reverse that trend. So real wage cuts under austerity programs could increase the wage share.

Answer: True

• 4. The payment of a positive interest return by the central bank on overnight bank reserves does not eliminate the need for it to conduct open market operations to ensure its policy rate is sustained (ignore any reserve requirements).

Answer: True

• 5. Premium Question: Mainstream economists have argued that the large scale quantitative easing conducted by central banks in recent years - so-called printing money - would be inflationary. They base their predictions on the Quantity Theory of Money which links the growth of the money stock to the inflation rate (too much money chasing too few goods). The fact that inflation is in retreat despite these programs does not refute the mainstream economic theory of inflation.

Answer: True